new lower fee D class funds for DIY

[twa2w]

RBC intends to launch new series of funds through RBCDI that will have lower MERs. Example RBC Balanced fund has an MER or 2.00% - the D series will be 1.25.
For the O'Shaughnessy fans, the O'S International fund D mer will be 1.10% versus 1.85%
RBC Dividend fund would be 1.00 versus 1.5%
Watch for launch in early July. Maybe the start of something for DIY investors
minimum 10,000 per fund investment per account
Cheers
J

[AltaRed]

It will be interesting if current DIY holders of these funds will be auto-converted, have to initiate requests to convert, or will be denied conversion.

I would hope (presume) investors who buy these funds through their RBC branches will also be offered that same opportunity. They had better because I know some folks (relatives) who will become rather upset otherwise.

Added: An attempt to compete with TDW efunds?

[Shakespeare]

A big step in the right direction, unless there are onerous availability restrictions.

[jwilkinson]

RBC may be moving in the right direction but what about PHN? Checkout Two New Fund Series Give Clients More Choice.

As of July 2nd PHN will have a B and F class. I wonder if I will still be able to purchase the A class through Scotia and not pay a trailer of 0.5%.

[marty123]

I would hope (presume) investors who buy these funds through their RBC branches will also be offered that same opportunity. They had better because I know some folks (relatives) who will become rather upset otherwise.

If they buy through their branches, I suspect that they do so through an RBC advisor, and therefore will be sold A funds (or I, which still pay a trailer). twa seems to have the inside track on RBC matters, and he did expressly say RBCDI

[AltaRed]

twa seems to have the inside track on RBC matters, and he did expressly say RBCDI

I realize that too. But that was my point.....

[marty123]

I realize that too. But that was my point.....

Sorry, It was so subtle that I missed it .

It seems like RBC is really starting to apply pressure to retain and grow their customer base. The high-interest account* and the "free-banking"** for those with investments and mortgages were a good first step. I WONDER if they'll bring back the 1% buyout with a $10/trade RBCDI fee ? I'm not talking about $9.95 for active traders, I'm talking about $9.95 for high-net worth customers.

*: 3% is better than nothing to keep our large instalment balances and it has so far helped with keeping my banking business
**: I still haven't determined whether I'll trade that offer with RESPs at TDefunds and free banking at PC, BUT if RBCDI became more competitive, it sure would make sense for me to keep it all at RBC

[twa2w]

Series D will be available on or about July 3, 2007 on all RBC Funds currently available in Series A, excluding RBC Portfolio Solutions, RBC Index Funds, and the RBC Premium Money Market Fund.
Series D will be offered exclusively to RBC Direct Investing clients with a minimum of $10,000 to invest, per mutual fund, per account.

This is designed for do it yourselfers - if you come through the branch or RBCDS you pay have to pay for the advice.

Cheers
J

[IdOp]

Of course we'll have to wait for all the details of an official announcement, but this strikes me as a potentially very significant move by RBC. It's not just a few token basis points symbolically scraped off some selected international funds. I would never have believed this was coming at once, given the glacial pace of fee changes in the comfy fund industry.

Obviously, they are trying to attract assetts to RBCDI, but I can see these D-series funds being sold by other brokers with a commission, too. Other fundcos, big and small, may end up clambering like rabbits trying to appear to jump ahead. It could lead to significant change in the nature of fund fee structure for many discount brokerage customers.

It doesn't do away with the problems of active management, and the high charges of the conventional series, but it has the potential to be a real change toward the better, should create a whirlwind of press and give ordinary investors some real questions to ask themselves, about what they are paying for, and why.

[Bylo Selhi]

This announcement is effectively an acknowledgment by RBC that DIYers shouldn't have to pay for advice they don't want (and which RBCDI is enjoined by regulators from providing.)

1. When will RBCDI (and hopefully the rest of the discount brokerage industry) allow DIYers to buy F-class mutual funds instead of forcing them to pay the "advice tax" that's imbedded in A et al classes?

2. When will RBC mutual funds allow other discount brokers to offer the D class of their funds?

[Shakespeare]

RBC Direct Investing clients to benefit from new tailor-made mutual fund pricing option

The management fees of Series D units will range from 0.60 per
cent to 1.25 per cent and investors must purchase a minimum of $10,000 in each
fund.

List of Funds (pdf)

[parvus]

jwilkinson wrote:

As of July 2nd PHN will have a B and F class. I wonder if I will still be able to purchase the A class through Scotia and not pay a trailer of 0.5%.

From what I've heard (there's a PH&N investor event tonight), discount brokers will probably move to the B class. Too bad, because RBCDI, so far as I know, wasn't charging a fee, whereas some others do charge for third-party no-loads at least upon exit. RBC's policy on free trades and redemptions is only about three years old, IIRC. Then again, who knows what each discount broker will do.

Anyway, here's the magnitude of the fee reduction (or the fees, depending on your POV), for O'Shaughnessy International:

Management fee
Series A – 1.85%
Advisor Series – 1.85%
Series D – 1.10%
Series F – 0.85%
Series I – up to 0.85%
Series O – negotiable and paid directly to RBC AM

Administration fee
Series A – 0.20%
Advisor Series – 0.15%
Series D – 0.15%
Series F – 0.15%
Series I – 0.02%
Series O – ��%

altared wrote:

It will be interesting if current DIY holders of these funds will be auto-converted, have to initiate requests to convert, or will be denied conversion.

According to the prospectus (see sedar.com), they'll have to ask to convert. As I said in another post, because I have O'Shaughnessy holdings (two of which are closed, and I am thinking of tapping the open account for a downpayment in the next five years) scattered between taxable and non-taxable accounts, it will probably take me two years to accomplish the transfer-ins to get the $10k discount. Anyway, this makes RBC competitive with PH&N and Mawer, and more competitive than Saxon, so the 20% of my money RBC has may rise to 30% (since the O'Shaughnessy International MER was a disappointment compared to the U.S. Growth and Value MERs).

BTW, fund closings lead to bizarre investment decisions.

As for bylo's questions,

1. When will RBCDI (and hopefully the rest of the discount brokerage industry) allow DIYers to buy F-class mutual funds instead of forcing them to pay the "advice tax" that's imbedded in A et al classes?

2. When will RBC mutual funds allow other discount brokers to offer the D class of their funds?

I have my doubts about the D class being made before available before the other banks contrive a D class. That would mean putting assets under management first with cheap prices as a priority (sorta like the Fidelity-Vanguard-Capital International-T.Rowe Price competition in the States for the retail client). I see this primarily as an inter-bank competition.

Only then, I hazard, would the F class open up, and as you can see from my citation about fees, there's still an implied 25 bps trailer fee on the D class versus the F class. I'm not sure how discounters will get over that hurdle without charging an ETF-like trading commission.

[Jay81]

Why such a big deal over this class of funds?

TDEfunds: www.tdefunds.com does this better (much lower MER, index funds, wide selection) and for quite awhile now. Why would I want to choose anyone else, especially if the MER is higher and most funds are actively managed?

It really doesnt seem like anything exciting to me. As well, there is a $10,000 minimum which will push some people away. TD eFUNDS are an astonishingly low $100 minimum when purchased through TD Waterhouse.

On top of all this ...that high savings account looks nice...however, if I have funds looking for a short term park I can get a TD Wait and See GIC at 4.15% now and that rate is good for one year..or I can take the funds out anytime after 30 days and get the interest.

If I plan for less then 30 days I can put it in TD Canadian Money Market..I think around 3.4% right now? or Manulife Bank through TDW Discount Broker which is around 3.8% I believe.

I never made the switch and dont regret it....Im very happy where I am. The only real benefit I see here is the 1%..which I must admit..hey 1% is 1% and thats enticing to me. =)

[ukridge]

A step in the right direction. But my excitement is tempered by two things:

- no index funds in the list.
- PHN is parhaps making an offsetting move, giving a way for the discounts to sell its funds and charge a trailer. I can see the discounters somehow stopping the sale of series A.

- ukridge.

[Jay81]

Taking a second look..in some cases the MER's are still 3x higher then TD Efunds. Im disappointed to be totally honest.

[parvus]

Taking a second look..in some cases the MER's are still 3x higher then TD Efunds. Im disappointed to be totally honest.

Depends on what you're looking for, I suppose.

While many folks have accused O'Shaughnessy of data-mining, his results are satisfactory for me.

On the larger debate on TD efunds, well, there's the whole dispute over whether cap-weighted index funds, however cheap they may be, are superior to various, slightly more expensive, enhanced index strategies.

As for the big deal part of it: it signals a bank war. It will be interesting to watch.

[Bylo Selhi]

It's about time: Do-it-yourselfers to pay less for advice-free mutual funds

For ages, the fund industry has had a neat little scam going where it builds the cost of advice into the cost of owning its products, regardless of whether a client buys the fund from an adviser or through a discount broker. Discounters, of course, are order takers who provide no advice. Fund fees that cover the cost of advice are called trailing commissions and they can account for as much as 0.50 to 1.15 percentage points of the management expense ratio of an RBC equity or balanced fund. If you're not getting advice, this is money wasted.

When they become available in early July, RBC's new D-series funds will have MERs that include trailers of no more than 0.25 of a point. By paying less in fees for their funds, RBC Direct Investing clients will stand to make substantially higher returns...

The fact that RBC Direct provides zero advice suggests trailers should be eliminated altogether for self-directed investors. But Mr. Coulter said a small trailer is required to cover various costs. A trailer of 0.1 per cent seems about right for a discount broker and, while we're criticizing, it would be nice if RBC made its D funds available through other discount dealers...

Mr. Coulter said the firm will talk to third-party firms about developing their own version of the D series fund. "It's going to be interesting," he said. "This is a competitive marketplace."...

Carrick goes on to note that D series funds will sport trailers that vary from 10bp on MM, 15bp on Income and 25bp on Balanced and Equity asset classes. That begs another issue. Carrick says, "Mr. Coulter said a small trailer is required to cover various costs." Fine. Now, since no advice is given, presumably these "various costs" are related to processing fund sales/redemptions and account administration.

Two questions:
1. Why is it more expensive (and by a whopping factor of 2.5x) to administer an equity fund compared to a MM fund? If no advice is given, what additional costs to RBCDI are there?
2. When an investor buys/sells a stock they pay a fixed one-time commission of between $10 and $30 (at most discount brokers.) They receive no further, ongoing remuneration no matter how long the investor holds the stock. So why do they now need to get paid a minimum (based on $10k) fee of $10 to $25 each and every year to provide the same brokerage services for a mutual fund?

[graemediesel]

It would be nice if they would reopen RBC O'shaughnessy American Growth for a little while. I have $9,200, which is frustratingly just below the 10k minimum. Oh well, if this year continues to be good it should be up to 10k by the end of the year.

[AltaRed]

Two very good questions. Perhaps Mr Carrick should be prompted to publicize those questions as a followup. Perhaps mutual funds should be bought and sold like equities, e.g. $10 commission.

[marty123]

Carrick goes on to note that D series funds will sport trailers that vary from 10bp on MM, 15bp on Income and 25bp on Balanced and Equity asset classes. That begs another issue. Carrick says, "Mr. Coulter said a small trailer is required to cover various costs." Fine. Now, since no advice is given, presumably these "various costs" are related to processing fund sales/redemptions and account administration.

Two questions:
1. Why is it more expensive (and by a whopping factor of 2.5x) to administer an equity fund compared to a MM fund? If no advice is given, what additional costs to RBCDI are there?

Call me stupid, but I don't see how a balanced/equity fund entry is more difficult to admister than a MM. The average MM would be held for a much shorter period of time. Forget about making them equal, I would assume you could make the equity/balanced fund have a lower trailer fee to cover these administration expenses.

The difference can only be there because the bank can get away with it (i.e. from a bigger MER, they can afford to leave a bigger trailer).

[ukridge]

I am just as reluctant to pay trailer feels for mutual funds held with discount brokers, but I don't understand this outrage at Mr. Coulter's statements.

In capitalism, the seller doesn't have to explain his reasoning for the pricing. The buyer is free to walk away if the price doesn't seem reasonable. If the seller doesn't feel that enough buyers are walking away, he'll continue his pricing strategy. The premium he charges can be thought of as the surcharge on ignorance/apathy.

Unfortunately for us, most Canadians don't walk away from expensive mutual funds and trailer fees. We have to welcome steps like these in the right direction.

- ukridge.

[DanH]

1. Why is it more expensive (and by a whopping factor of 2.5x) to administer an equity fund compared to a MM fund? If no advice is given, what additional costs to RBCDI are there?

Did you ever consider that maybe 0.25% is the cost (+ profit margin) and the profit was discounted for bond and money market funds? I didn't say I believed it, just that it was a possibility.

[Bylo Selhi]

Did you ever consider that maybe 0.25% is the cost (+ profit margin) and the profit was discounted for bond and money market funds?...

Hence my question 2.

Brokering stocks for $10 to $30 a pop must be such a lousy business that the big bad banks need the fund business to make a profit at it. Damn stock traders should pay more, eh?

[DanH]

Did you ever consider that maybe 0.25% is the cost (+ profit margin) and the profit was discounted for bond and money market funds?...

Hence my question 2.

Brokering stocks for $10 to $30 a pop must be such a lousy business that the big bad banks need the fund business to make a profit at it. Damn stock traders should pay more, eh?

I never understood how discounters could profit from the $10-$30 per trade model. I figure there must be enough people either doing lots of trading and/or buying mutual funds that pay trailers that the aggregate commissions are enough to make a good business for them. But if everybody was like me, they'd go broke or they'd have to charge me a flat account admin fee.

[Shakespeare]

I never understood how discounters could profit from the $10-$30 per trade model.

Ever heard of the term "loss leader"?